Dividend Reinvestment Plan (DRP)
A plan that automatically reinvests your dividends or distributions into additional shares or units instead of paying cash.
A Dividend Reinvestment Plan (DRP) allows shareholders or unit holders to automatically reinvest their dividends or distributions into additional shares or units of the same company or fund, rather than receiving cash. DRP shares are often issued at a small discount (typically 1–2%) to the market price, and there are no brokerage fees. This makes DRPs an efficient way to compound your investment over time.
Critically, for tax purposes, DRP dividends/distributions are treated exactly the same as cash dividends/distributions — they are fully assessable income in the year they are received, even though you didn't receive cash. The assessable amount is the gross dividend (including franking credits if applicable), not the DRP share price. Many investors are caught out by this, expecting that reinvested dividends are not taxable until the shares are eventually sold.
When you eventually sell DRP shares, you need to know the cost base of each parcel (the DRP price at which each batch of shares was issued) and the acquisition date (for CGT discount eligibility). Over many years of DRP participation, you may accumulate dozens of small parcels with different cost bases and dates. Keeping accurate records — or using a portfolio tracking tool — is essential for correct CGT calculations when you sell.